Blockchain technology and cryptocurrency are often confused, while cryptocurrency—Bitcoin, Ethereum, or maybe Dogecoin is a popular application of blockchain, it's not the only one. Blockchain offers a wide range of potential benefits across various sectors, from finance and agriculture to healthcare and education.
However, the misconception that cryptocurrency is the sole purpose of blockchain has led to scepticism and fear among governments, resulting in strict regulations that can hinder innovation. To fully unlock the potential of blockchain in Africa, it's crucial to understand the distinction between the technology and its applications.
Let’s explore the types of blockchain, learn the basics, and understand how it all works with an easy-to-understand example.
The Difference Between Blockchain and Cryptocurrency
Here’s an easy analogy: think of blockchain as a smartphone, while cryptocurrency is just one of the apps you can install on it. A smartphone can do many things—it can send emails, play games, take pictures, and more. Similarly, blockchain is the technology that can power many things beyond cryptocurrency, such as secure data storage, smart contracts, voting systems, and decentralized applications (dapps).
Now let’s use ICP, a blockchain designed by the DFINITY Foundation, to make this distinction clearer. ICP is a blockchain network that supports decentralized applications and services. While it does have a native token (ICP), its primary purpose is not just to be a currency. ICP enables developers to build internet-based applications on a decentralized platform. For instance, Streamlivr, an app running on ICP, allows creators to stream live events to a global audience using blockchain—not to buy or sell currency, but to facilitate secure, transparent, and efficient interactions with viewers and ticket sales.
In short:
- Blockchain: The underlying technology—a secure, distributed, and unchangeable ledger.
- Cryptocurrency: One application of blockchain, mainly used for digital currency transactions.
Types of Blockchain
Not all blockchains are the same, and different types have evolved to suit various needs. Here are four main types of blockchain you should know:
1. Public Blockchains
Public blockchains are completely open to anyone who wants to join. They are decentralized, meaning there’s no central authority in control. Every participant has a copy of the ledger, and anyone can verify transactions. Bitcoin and Ethereum are popular examples of public blockchains, where anyone with an internet connection can participate by downloading the necessary software.
ICP as a Public Blockchain Example: The Internet Computer Protocol is also a public blockchain. It allows anyone to build or interact with dapps, run nodes, and participate in governance. ICP’s unique feature is that it doesn’t just handle transactions—it can run full applications and services in a decentralized way. This makes it a powerful alternative for developers who want to create apps free from central servers like Amazon Web Services (AWS) or Google Cloud.
2. Private Blockchains
Private blockchains operate on a closed network, where only selected participants have access. These are commonly used within organizations or businesses to streamline processes without making data public. Private blockchains can still offer security and immutability, but they’re not open to the public, and access is limited to trusted individuals.
Imagine a large retail company using a private blockchain to manage its supply chain. Each supplier has restricted access to the blockchain, ensuring they can only view and verify their own part of the process without seeing sensitive data from other suppliers.
3. Consortium (or Federated) Blockchains
Consortium blockchains are controlled by a group of organizations rather than a single entity. This type of blockchain is popular in industries where collaboration is beneficial, such as banking, healthcare, or trade. Consortium blockchains bring the advantages of decentralization but limit access to trusted parties only.
For example, a group of banks might create a consortium blockchain to share data securely between them, allowing transactions to be verified without involving a central authority. This approach enhances efficiency, lowers costs, and increases transparency without making the data available to the general public.
4. Hybrid Blockchains
Hybrid blockchains combine elements of both public and private blockchains. They allow certain data to be made public while keeping other information private. This is useful when organizations want the transparency and security of a public blockchain but need to control access to sensitive data.
Let’s say a government uses a hybrid blockchain to verify IDs. General data, like name and date of birth, can be verified by anyone (public), while sensitive information like social security numbers is restricted to authorized personnel only (private). Hybrid blockchains offer flexibility in how data is shared.
Why Use Different Types of Blockchain?
Each type of blockchain serves a unique purpose. Public blockchains are great for open, trustless networks where decentralization is essential, like in cryptocurrency. Private and consortium blockchains are beneficial for industries that require efficiency, privacy, and trust among a limited set of participants. Hybrid blockchains provide the best of both worlds, allowing selective data sharing.
ICP’s Role in Blockchain Technology: More Than Just Cryptocurrency
The Internet Computer Protocol is a great example of how blockchain can go beyond cryptocurrency. ICP uses its blockchain to create an “internet computer” where applications can run in a decentralized way. It’s a kind of “cloud 2.0” where people can create and use apps without relying on big tech companies’ servers. While ICP has its own token, which helps users participate in governance and transactions, its primary focus is on enabling a decentralized internet.
Through ICP’s blockchain, developers can build anything from social networks to productivity tools to games. It’s like an alternative internet where data isn’t controlled by a few corporations but is instead powered by a global community. By doing this, ICP offers a unique vision of what blockchain technology can achieve beyond money.
In the ever-expanding world of blockchain, cryptocurrency is just the beginning. As more people explore this technology, new applications continue to emerge, showing us how much is possible when we think beyond digital coins. Blockchain isn’t just about currency—it’s about creating a better, more decentralized world.
Article by: Mana Lamja